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1

According to the World Trade Organization, what was the size of international trade in 2011?


A. $7,000,000,000 (7 billion dollars)

B. $70,000,000,000 (70 billion dollars)

C. $37,000,000,000 (37 billion dollars)

D. $18,000,000,000,000 (18 trillion dollars)

D. $18,000,000,000,000 (18 trillion dollars)

2

n the years between 1990 and 2001 when global gross domestic product rose 27%, what was the growth in global exports?


A. 25%

B. 75%

C. 35%

D. 50%

B. 75%

3

What is a "foreign exchange rate?"


A. The price to buy a foreign currency

B. The price to buy foreign goods

C. The difference between the price of goods in a foreign currency and the price in a domestic currency

D. The cost to hold all monetary assets in a single currency

A. The price to buy a foreign currency

4

Which of the following statements is true about the Euro?


A. It is the currency used by all countries in the European Union.

B. It is pegged to the U.S. dollar.

C. It is the currency required to be used in financial reporting under international accounting standards.

D. None of the statements above is true.

D. None of the statements above is true.

5

A bank exchanging foreign currency makes its profit in what manner?


A. On the difference between the spot rate and the foreign rate

B. A bank is forbidden, by law, to charge a premium in foreign currency exchange

C. On the present value of the forward rate discounted to the date an option is purchased

D. On the difference between the buying and selling rates

D. On the difference between the buying and selling rates

6

King's Bank, a British company, purchases market research services from Harris Interactive, a U.S. company. As per the terms of the contract, payment is to be made three months later in U.S. dollars when the report is delivered. How would King's Bank like to see the exchange rate move, assuming it isn't hedging the transaction?


A. It hopes that the U.S. dollar appreciates in value against the British pound.

B. It hopes that the British pound appreciates in value against the U.S. dollar.

C. It makes no difference, since they are the customer and the sale takes place in the U.K.

D. It hopes that there is no change between the spot rate and the forward rate.

B. It hopes that the British pound appreciates in value against the U.S. dollar.

7

Why was there very little fluctuation in the foreign exchange rate in the period 1945-1973?


A. This was a period when the world economy was very stable.

B. There was very little growth in the world economy between 1945 and 1973.

C. Countries linked their currency to the U.S. dollar, which was backed by gold reserves.

D. Most currencies were pegged to the British pound, which could be converted to sterling silver.

C. Countries linked their currency to the U.S. dollar, which was backed by gold reserves.

8

The central bank of Country X buys and sells its own currency to ensure that the currency is always exchanged in a ratio of 2:1 with the currency of Country Y. What can we conclude about these two currencies?


A. Country X is using the Euro.

B. Country X has pegged its currency to the currency of Country Y.

C. Country X has an undesirable currency.

D. Country X allows its currency to float relative to the currency of Country Y.

B. Country X has pegged its currency to the currency of Country Y.

9

When a currency is allowed to increase or decrease freely according to market forces, the currency is said to:


A. be pegged to another currency.

B. be less valuable.

C. have independent float.

D. devalue.

C. have independent float.

10

For an upcoming trip, Pat wants to buy Euros at the local bank when the current exchange rate quoted on OANDA.com was $1.563 per €1. What should Pat plan to pay for €1,000?


A. exactly $1,563

B. more than $1,563

C. about $640

D. less than $640

B. more than $1,563

11

he number of Japanese yen (¥) required today to buy one U.S. dollar ($) today is called:


A. the spot rate.

B. the exact rate.

C. the forward rate.

D. the retail rate.

A. the spot rate.

12

The number of U.S. dollars ($) today to buy one U.K. pound (£) six months from now is called:


A. the spot rate.

B. the exact rate.

C. the forward rate.

D. the prime rate.

C. the forward rate.

13

What is foreign exchange risk exposure?


A. The possibility of a loss because of changes in the value of a foreign currency

B. Losses caused by paying for purchased goods in a foreign currency

C. Losses caused by receiving payment in a foreign currency for goods sold

D. All of the above
v

A. The possibility of a loss because of changes in the value of a foreign currency

14

What is "asset exposure" to foreign exchange risk?


A. The possibility that an asset denominated in domestic currency will decline in value because of changes in the foreign exchange rate

B. The possibility that an asset denominated in a foreign currency will change in value because of a change in the foreign exchange rate

C. The loss resulting from an import purchase when a foreign currency appreciates

D. The loss resulting from an import purchase when a foreign currency depreciates

B. The possibility that an asset denominated in a foreign currency will change in value because of a change in the foreign exchange rate

15

What is a foreign currency transaction?


A. It is another name for an international transaction.

B. It is a transaction that involves payment at a date sometime in the future.

C. It is a business deal denominated in a currency other than a company's domestic currency.

D. It is an economic event measured in a currency other than U.S. dollars.

C. It is a business deal denominated in a currency other than a company's domestic currency.

16

Under U.S. GAAP, what method is required to account for foreign currency transactions?


A. A one-transaction perspective must be used.

B. The two-transaction perspective must be used.

C. A sale is not recorded until payment is received and converted to U.S. dollars.

D. A sale is not recorded until payment is received in the foreign currency.

B. The two-transaction perspective must be used.

17

Under International Accounting Standards Board rules, what method is required to account for foreign currency transactions?


A. A one-transaction perspective must be used.

B. The two-transaction perspective must be used.

C. A sale is not recorded until payment is received and converted to U.S. dollars.

D. A sale is not recorded until payment is received in the foreign currency.

B. The two-transaction perspective must be used.

18

Why must the two-transaction perspective be used for recording foreign currency transactions under U.S. GAAP?


A. The two-transaction perspective is required under IFRS.

B. U.S. GAAP requires conservatism in financial reporting.

C. All other methods are excessively complicated to use and therefore obscure the essence of the transaction.

D. Management made two decisions: one to sell and another to extend credit in a foreign currency.

D. Management made two decisions: one to sell and another to extend credit in a foreign currency.

19

Under U.S. GAAP, foreign exchange losses should be recorded by:


A. debiting "Foreign Exchange Loss".

B. crediting "Foreign Exchange Loss".

C. debiting "Retained Earnings".

D. debiting "Sales Revenue".

A. debiting "Foreign Exchange Loss".

20

Under U.S. GAAP, what is the proper treatment of unrealized foreign exchange losses?


A. They should be deferred on the Balance Sheet until the cash is paid.

B. They should not be recognized until cash is received to complete the transaction.

C. They should be recorded on the Income Statement in the period the exchange rate changes.

D. They should be deferred on the Balance Sheet until an offsetting foreign exchange gain is realized.

C. They should be recorded on the Income Statement in the period the exchange rate changes.

21

Under U.S. GAAP, what is the proper treatment of unrealized foreign exchange gains?


A. They should be deferred on the Balance Sheet until cash is received.

B. The principle of conservatism requires that they should never be recognized.

C. They should not be recorded until cash is received and the exchange transaction is completed.

D. They should be recognized in income on the date the exchange rate changes.

D. They should be recognized in income on the date the exchange rate changes.

22

Why is the accrual method of accounting for unrealized foreign exchange gains sometimes criticized?


A. Foreign exchange gains almost never occur, so there is no reason to have an accounting standard for it.

B. It violates the principle of conservatism.

C. It is not objective.

D. There is no reliable method for measuring unrealized foreign exchange gains.

B. It violates the principle of conservatism.

23

How should U.S. companies record receivables and payables from international trade that are denominated in foreign currencies?


A. All assets and liabilities of U.S. companies must be recorded in U.S. dollars.

B. Conservatism would dictate that liabilities should be recorded in the currency in which they are payable, but assets should be recorded in U.S. dollars, regardless of what currency will be received.

C. There should be separate receivable and payable accounts for each currency that is used by the company.

D. The company should choose any one currency to use for recording receivable and payables so that there is consistency in the accounts.

C. There should be separate receivable and payable accounts for each currency that is used by the company.

24

Northland Corporation recorded £1,000,000 in Accounts Receivable for sales to customers in the United Kingdom and recorded Accounts Payable of 2,000,000 Yuan for product purchased from China. If Northland recorded a foreign currency exchange loss on its receivables and a foreign currency gain on its payables, what must have happened to each currency?


A. Yuan appreciated, Pound depreciated

B. Yuan depreciated, Pound appreciated

C. Yuan appreciated, Pound appreciated

D. Yuan depreciated, Pound depreciated

D. Yuan depreciated, Pound depreciated

25

A noncancelable sales order that specifies foreign currency price and date of delivery is known as a:


A. hedge.

B. foreign currency firm commitment.

C. forward contract.

D. put option.

B. foreign currency firm commitment.

26

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27

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28

What term is used to describe the circumstances under which Amazing Corporation is entering the forward contract?


A. Hedge of an unrecognized foreign currency firm commitment

B. Hedge of a recognized foreign-currency-denominated asset

C. Hedge of a forecast foreign-currency-denominated transaction

D. Hedge of net investment in foreign operations

B. Hedge of a recognized foreign-currency-denominated asset

29

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30

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